Presentation for the WAD Quinquennial Division-wide Council, July 5, 201

Gibson, Annetta M.

English

Andrews University

Andrews UniversityDigital Commons @ Andrews UniversityFaculty Publications7-5-2017An Introduction to Financial AnalysisAnnetta M. GibsonAndrews University, gibson@andrews.eduFollow this and additional works at: https://digitalcommons.andrews.edu/pubsPart of the Finance and Financial Management CommonsThis Presentation is brought to you for free and open access by Digital Commons @ Andrews University. It has been accepted for inclusion in FacultyPublications by an authorized administrator of Digital Commons @ Andrews University. For more information, please contactrepository@andrews.edu.Recommended CitationGibson, Annetta M., "An Introduction to Financial Analysis" (2017). Faculty Publications. 534.https://digitalcommons.andrews.edu/pubs/5341P r e s e n t a t i o n  f o r  W A D  Q u i n q u e n n i a l  D i v i s i o n - W i d e  C o u n c i lJ u l y  5 ,  2 0 1 7An Introduction to Financial AnalysisAnn Gibson, PhD, CPAAndrews University2Financial StatementsStatement of Financial Position:Reports resources, obligations, andresidual ownership claimsStatement of Financial Activity:Reports revenues, expenses, gains,losses for a specific period of timeFinancial StatementsStatement of Changes in Net Assets:Summarizes activity for each functionand shows net increase or decreasefor the periodStatement of Cash FlowsReports cash “inflows” and “outflows”during the period3Reading the Financial StatementsOn the Statement of Financial Position, Assets are divided into two sections:Current Assets – which are expected to beconverted into cash or consumed withinone yearNon-current Assets – which are expected to beheld for one year or longer4Reading the Financial StatementsLiabilities are also divided into two sections:Current Liabilities – Obligations of the organization which are expected to bepaid within one yearOther Liabilities – Obligations which aredue sometime beyond one year56Reading the Financial StatementsNet Assets:  The difference between assets and liabilitiesUnallocated net assetsAllocated assetsThese distinctions are set by the governing committee8Analyzing the Financial StatementsStep one:Run your thumb down the current asset side of the operating fund and find the largest number(s).In this case it is “Accounts Receivable ” and “Investments ”Analyzing the Financial StatementsStep two:Review the numbers in the comparative format, as presented.In this case, cash is up; investments are up;  accounts receivable is up; accounts payable is up; offering and agency accounts are up.9Analyzing the Financial StatementsStep Three:  Ratio analysisRatio analysis is the process of comparing the level of different performance results to industry averages and to the organization’s own past performanceIt involves the comparison of two numbers on the financial statements and has the advantage of putting large numbers into an easily-understandable perspective10Analyzing the Financial StatementsLiquidity Ratios:  Used to estimate the ability to pay current obligationsAcid Test (or Quick Asset) RatioCash + Investments + ReceivablesCurrent LiabilitiesCurrent RatioCurrent AssetsCurrent Liabilities11Analyzing the Financial StatementsAcid Test Ratio for 20X1:1,702,641 + 8,571,777 + 9,069,178 =  2.188,852,959Acid Test Ratio for 20X0:1,599,670 + 5,840,869 + 8,042,572 =  2.685,781,74612Analyzing the Financial StatementsCurrent Ratio for 20X1:21,018,581 =  2.378,852,959Current Ratio for 20X0:17,243,606 =  2.985,781,746  13Analyzing the Financial StatementsRatio of Self-Support:Earned Income (without subsidies)Total Income (including subsidies)16Analyzing the Financial StatementsRatio of Self-Support for 20X1:7,012,701 =  65.5%7, 012,701 + 3,698,733Ratio of Self-Support for 20X0:6,822,823 =  55.6%6,822,823 + 5,450,16017Analyzing the Financial StatementsRatio of Payroll-Related Expense to Tithe:Total Payroll-Related ExpenseGross Tithe Income18Analyzing the Financial StatementsRatio of Payroll-Related Expense to Tithe:  (see note 14)20X1: 6,409,558 =     72.7%8,812,17820X0: 6,867,214 = 82.3%8,340,22819Analyzing the Financial StatementsDebt Percentage:Total Operating LiabilitiesTotal Operating Net Assets20Analyzing the Financial StatementsDebt Percentage:20X1: 12,173,703 = 85.1%14,303,42020X0: 8,242,746 = 55.4%14,870,687** 3,280,762 + 3,067,025 + 8,522,90021Analyzing the Financial StatementsSummary:2220X1 20X0Acid Test RatioCurrent Ratio2.182.372.682.98Ratio of Self-Support65.5% 55.6%Ratio of PayrollExpense to Tithe72.7% 82.3%Debt Percentage 85.1% 55.4%Analyzing the Financial StatementsRules for data selection for financial analysis:Measure accounts, balances, or activities for which:a.  The results of analysis would trigger the need for a management decision.23Analyzing the Financial Statementsb.  The decision is not obvious but would be of consequence to the organization.c.  The results can have significant repercussions for constituents, affiliated entities, or financial performance.24Analyzing the Financial Statementsd.  Key management or committee members have expressed a desire to know.25Analyzing the Financial StatementsEach not-for-profit sector uses its own unique ratiosFor example, hospitals analyze their activities on a patient-day or per-bed basisEducational institutions use a per-student or a per-course basis26Analyzing the Financial StatementsStatement of Cash Flows provides information on:The organization’s ability to generate positive future net cash flowsThe organization’s ability to meet its obligationsThe organization’s need for external financing27Analyzing the Financial StatementsThe Statement of Cash Flows is divided into:Cash Flows from Operating ActivitiesCash Flows from Investing ActivitiesCash Flows from Financing ActivitiesWhen the three sections are totaled the Statement of Cash Flows explains how the beginning cash balance was converted to the end-of-the-period cash balance28Any Questions?Thank you!   Are there any questions?30

An Introduction to Financial  Analysis

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An Introduction to Financial Analysis

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